Pursuant to Section 55-10-07 of the General Statutes
of North Carolina, Charles & Colvard, Ltd. hereby
submits the following for the purpose of restating its articles of
incorporation.

I.

The name of the corporation is Charles & Colvard, Ltd. (the “Corporation”).

II.

The Corporation is authorized to issue two (2) classes
of capital stock to be designated, respectively, Common Stock (“Common Stock”) and
Preferred Stock (“Preferred Stock”). The total number of shares of capital
stock that the Corporation is authorized to issue is sixty million
(60,000,000). The total number of shares of Common Stock the Corporation shall
have authority to issue is fifty million (50,000,000), and the total number of
shares of Preferred Stock the Corporation shall have authority to issue is ten
million (10,000,000). The Common Stock shall have no par value per share, and
the Preferred Stock shall have no par value per share.

A. Common Stock. All shares of Common Stock will be
identical and will entitle holders thereof to the same preferences, limitations
and relative rights set forth below.

(1)
Voting Rights. Each outstanding share of Common Stock shall be entitled to vote
on each matter on which the shareholders of the Corporation shall be entitled
to vote, and each holder of Common Stock shall be entitled to one vote for each
share of such Common Stock held by such holder.

(2)
Dividends. The Board of Directors of the Corporation may cause dividends to be
paid to holders of Common Stock ratably on a per share basis out of funds
legally available for the payment of dividends.

(3)
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Common Stock
shall be entitled, after payment or provision for payment of the debts and
other liabilities of the Corporation and the payment of any preferences for the
Preferred Stock to receive on a per share basis the remaining assets of the
Corporation.

B. Preferred Stock. The Preferred Stock shall be
divided into series. The first series shall consist of 105,000 shares and is
designated as 1996 Series A Preferred Stock (the “1996
Series A Stock”) with the preferences, limitations and relative rights set
forth below. The second series shall consist of 682,500 shares and is
designated as 1997 Series B Preferred Stock (the “1997 Series B Stock”) with
the preferences, limitations and relative rights set forth below. The remaining
shares of Preferred Stock may be issued from time to time in one or more
series, and with such preferences, limitations and relative rights as the Board
of the Corporation (the “Board”) may determine, all of which shall be stated
and expressed in one or more amendment(s) to the Corporation’s Articles of
Incorporation adopted by the Board providing for the issue of such series as
permitted by the North Carolina Business Corporation Act.

C. 1996 Series A Stock. The preferences, limitations
and relative rights of the 1996 Series A Stock are as
set forth below.

(a)

Voting Rights. Except as
otherwise required under North Carolina law, the holders of 1996 Series A
Stock shall not be entitled to vote. In any matter in which the holders of
1996 Series A Stock shall be entitled to vote pursuant to applicable law,
each holder shall be entitled to one vote for each share of 1996 Series A
Stock held by such holder.

(b)

Dividends. The Board shall
cause dividends to be declared and paid to holders of 1996 Series A Stock as,
when and if declared on the Common Stock. Each share of 1996 Series A Stock
shall be entitled to receive dividends equal to the cash, property or other
item of value that would have been such payable upon such share if that share
of 1996 Series A Stock had been converted into shares of Common Stock
immediately prior to the declaration of such dividend on the Common Stock.

(c)

Conversion.

(i)
Optional Conversion. Each share of 1996 Series A Stock shall be convertible
into one share of Common Stock (the “Series A Conversion Ratio”), at the option
of the holder thereof, at any time after the earlier of (i)
July 31, 1998 or (ii) the date on which the Corporation closes the sale of
Common Stock in an offering registered under the Securities Act of 1933, as
amended, with net proceeds to the Corporation and/or any selling shareholders
of at least $8.0 million (after deductions for underwriters’ discounts and
expenses relating to the issuance, including without limitation fees of the
Corporation’s counsel). The Series A Conversion Ratio
shall be adjusted as hereinafter provided.

(ii) Automatic
Conversion. Each share of 1996 Series A Stock shall automatically be converted
into shares of Common Stock at the then effective Series A Conversion Ratio
immediately upon, and contemporaneously with, the earlier of (A) the effective
time of any merger of the Corporation with any other entity, any share exchange
of the Common Stock effected with any other entity or any sale of all or
substantially all the assets of the Corporation or (B) the date on which the
Corporation closes the sale of Common Stock in an offering registered under the
Securities Act of 1933, as amended, with net proceeds to the Corporation and/or
any selling shareholders of at least $12.0 million (after deductions for
underwriters’ discounts and expenses relating to the issuance, including
without limitation, fees of the Corporation’s counsel).

(iii) Mechanics of
Conversion. In order to convert shares of 1996 Series A Stock into shares of
Common Stock other than pursuant to clause (ii) above, the holder thereof shall
surrender the certificate or certificates therefor,
duly endorsed, at the principal office of the Corporation or of any transfer
agent for such stock, and shall give written notice to the Corporation at such
office that he elects to convert the same and shall state therein the name or
names in which he wishes the certificate or certificates representing shares of
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of 1996 Series A
Stock a certificate or certificates for the number of shares of Common Stock to

which he shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of surrender of the shares of 1996 Series A Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.

(iv)
Adjustments to Conversion Ratio
for Stock Combinations or Subdivisions of Common Stock. If the Corporation at
any time or from time to time after the date on which shares of 1996 Series A
Stock are first issued shall declare or pay, without consideration, any right
to acquire Common Stock for no consideration (other than pursuant to a stock or
other dividend for which a dividend is payable to the holders of 1996 Series A
Stock pursuant to subparagraph C(b) above), or shall effect a subdivision of
the outstanding shares of Common Stock into a greater number of shares of
Common Stock (by stock split, reclassification or in any way other than by
payment of a dividend in Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series A
Conversion Ratio in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate.

(v) Adjustments for
Reclassification and Reorganization. If the Common Stock issuable
upon conversion of the 1996 Series A Stock shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
reclassification of stock or otherwise (other than a subdivision or combination
of shares provided for in subparagraph (iv) above), the Series A Conversion
Ratio then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that the
1996 Series A Stock shall be convertible into, in lieu of the number of shares
of Common Stock which the holders would otherwise have been entitled to
receive, that number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the 1996 Series A Stock
immediately before that change.

(vi) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the 1996 Series A Stock but will at all times in good faith
assist in the carrying out of all the provisions of this section and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the 1996 Series A Stock against
impairment.

(vii) Certificates as to
Adjustments. Upon the occurrence of each adjustment or readjustment of the
Series A Conversion Ratio, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and

furnish to each holder of
1996 Series A Stock a certificate executed by the Corporation’s President or
Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of 1996 Series A Stock, furnish or cause to be furnished to such holder
a like certificate setting forth (A) such adjustments and readjustments, (B)
the Series A Conversion Ratio at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of the 1996 Series A Stock.

(viii) Reservation of
Stock IssuableUpon
Conversion. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of 1996
Series A Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
1996 Series A Stock.

(ix) Fractional Shares.
No fractional share shall be issued upon the conversion of any share or shares
of 1996 Series A Stock. If the conversion would result
in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise entitled
to such fraction a sum of cash equal to the fair market value of such fraction
on the date of conversion as determined in good faith by the Board.

(d)

Redemption Rights of the
Corporation. At the option of the Board, the Corporation may, at any time at
which the 1996 Series A Stock is convertible into Common Stock, redeem from
any source of funds legally available therefor, all
or any portion of the outstanding shares of 1996 Series A Stock, at a
redemption price per share equal to $5.75 (the “Series A Redemption Price”)
plus all declared and unpaid dividends thereon, by giving written notice to
each holder of record of 1996 Series A Stock to be redeemed (a “Series A Redemption
Notice”) at its post office address last shown on the records of the
Corporation, not later than 30 days prior to the date fixed for any
redemption (a “Series A Redemption Date”) specifying the number of shares of
1996 Series A Stock that are to be redeemed on the Series A Redemption Date
specified in such Series A Redemption Notice. On such Series A Redemption
Date, the Corporation will pay to each holder of 1996 Series A Stock, upon
surrender for cancellation to the Corporation at its principal office of the
certificates, duly endorsed in blank, representing the shares of 1996 Series
A Stock to be redeemed on such Series A Redemption Date, an amount per share
equal to the Series A Redemption Price thereof plus all declared but unpaid
dividends thereon. If less than all of the shares represented by any such
certificate are redeemed, the shares to be redeemed shall be selected from
the then outstanding shares on a pro rata basis and a new certificate shall
be issued representing the unredeemed shares. Until the Series A Redemption
Date, holders of the 1996 Series A Stock shall be entitled to the full
preferences, limitations and relative rights of such stock. The holders of
such shares of 1996 Series A Stock shall cease to have any further rights,
other than the right

to receive the Series A Redemption Price thereof plus
such declared and unpaid dividends, with respect to the 1996 Series A Stock on
the Series A Redemption Date.

(e)

Liquidation Rights. In the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of shares of 1996
Series A Stock then outstanding shall be entitled to be paid, in cash, out of
the assets of the Corporation available for distribution to its stockholders,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any shares of Common Stock or any other shares of
the Corporation junior or subordinate to the 1996 Series A Stock, (i) $3.00 per share, together with all declared and unpaid
dividends on the 1996 Series A Stock, plus (ii) an amount equal to the
Corporation’s net assets remaining after the payment of the amount described
in clause (i) above, multiplied by the percentage
of the Common Stock that would be owned by holders of the 1996 Series A Stock
if converted on the date of such payment into Common Stock, such amount to be
distributed among the holders of the 1996 Series A Stock on a pro rata basis.
If, upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed among the
holders of shares of 1996 Series A Stock are insufficient to permit the
payment to such holders of the entire preferential amount provided for in
clause (i) above, then all of the net assets of the
Corporation shall be distributed pro rata among the holders of shares of 1996
Series A Stock.

(f)

No Reissuance
of Stock. No 1996 Series A Stock acquired by the Corporation by reason of
redemption, purchase, or otherwise shall be reissued, and all such shares
shall be canceled, retired and eliminated from the 1996 Series A Stock and
shall return to the status of Preferred Stock authorized without designation.

D. 1997 Series B Stock. The preferences, limitations
and relative rights of the 1997 Series B Stock are as set forth below.

(a)

Voting Rights. Except as
otherwise required under North Carolina law, the holders of 1997 Series B
Stock shall not be entitled to vote. In any matter in which the holders of
1997 Series B Stock shall be entitled to vote pursuant to applicable law,
each holder shall be entitled to one vote for each share of 1997 Series B
Stock held by such holder.

(b)

Dividends. The Board shall
cause dividends to be declared and paid to holders of 1997 Series B Stock as,
when and if declared on the Common Stock. Each share of 1997 Series B Stock
shall be entitled to receive dividends equal to the cash, property or other
item of value that would have been payable upon such share if that share of
1997 Series B Stock had been converted into shares of Common Stock
immediately prior to the declaration of such dividend on the Common Stock.

(c)

Conversion.

(i)
Optional Conversion. Each share of 1997 Series B Stock shall be convertible
into one share of Common Stock (the “Series B Conversion Ratio”), at the option
of the holder thereof, at any time after the earlier of (i)
January 1, 1999 or (ii) the date on which the Corporation closes the sale of
Common Stock in an offering registered under the Securities Act of 1933, as
amended, with net proceeds to the Corporation and/or any selling shareholders
of at least $8.0 million (after deductions for underwriters’ discounts and
expenses relating to the issuance, including without limitation, fees of the
Corporation’s counsel). The Series B Conversion Ratio shall be adjusted as
hereinafter provided.

(ii) Automatic
Conversion. Each share of 1997 Series B Stock shall automatically be converted
into shares of Common Stock at the then effective Series B Conversion Ratio
immediately upon, and contemporaneously with, the earlier of (A) the effective
time of any merger of the Corporation with any other entity, any share exchange
of the Common Stock effected with any other entity or any sale of all or
substantially all the assets of the Corporation, or (B) the date on which the
Corporation closes the sale of Common Stock in an offering registered under the
Securities Act of 1933, as amended, with net proceeds to the Corporation and/or
any selling shareholders of at least $12.0 million (after deductions for
underwriters’ discounts and expenses relating to the issuance, including
without limitation, fees of the Corporation’s counsel).

(iii) Mechanics of
Conversion. In order to convert shares of 1997 Series B Stock into shares of
Common Stock other than pursuant to (ii) above, the holder thereof shall
surrender the certificate or certificates therefor,
duly endorsed, at the principal office of the Corporation or of any transfer
agent for such stock, and shall give written notice to the Corporation at such
office that he elects to convert the same and shall state therein the name or
names in which he wishes the certificate or certificates representing shares of
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of 1997 Series B
Stock a certificate or certificates for the number of shares of Common Stock to
which he shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of
surrender of the shares of 1997 Series B Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.

(iv)
Adjustments to Conversion Ratio
for Stock Combinations or Subdivisions of Common Stock. If the Corporation at
any time or from time to time after the date on which shares of 1997 Series B
Stock are first issued shall declare or pay, without consideration, any right
to acquire Common Stock for no consideration (other than pursuant to a stock or
other dividend for which a dividend is payable to the holders of 1997 Series B
Stock pursuant to subparagraph D(b) above), or shall effect a subdivision of
the outstanding shares of Common Stock into a greater number of shares of
Common Stock (by stock split, reclassification or in any way other than by
payment of a dividend in

Common Stock), or in the
event the outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Common
Stock, then the Series B Conversion Ratio in effect immediately prior to such
event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.

(v) Adjustments for
Reclassification and Reorganization. If the Common Stock issuable
upon conversion of the 1997 Series B Stock shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
reclassification of stock or otherwise (other than a subdivision or combination
of shares provided for in subparagraph (iv) above), the Series B Conversion
Ratio then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that the
1997 Series B Stock shall be convertible into, in lieu of the number of shares
of Common Stock which the holders would otherwise have been entitled to
receive, that number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the 1997 Series B Stock
immediately before that change.

(vi)
Further Adjustment to the Number
of Shares of Common Stock Issuable Upon Conversion.

(A) Adjustment to the
Conversion Price - If and whenever after the date hereof the Corporation shall
issue or sell any shares of its Common Stock for a consideration per share less
than the conversion price in effect immediately prior to the time of such issue
or sale (the “Conversion Price”; the initial Conversion Price shall be $7.35)
or the Market Price (as defined below) at the time of such issue or sale, then,
forthwith upon such issue or sale, the Conversion Price with respect to the
1997 Series B Stock subsequent to such event shall be reduced (but not increased,
except as otherwise specifically provided in subclause
(D) below) to the lower of the prices (calculated to the nearest cent)
determined as follows: (1) by dividing (i) an amount
equal to the sum of (A) the aggregate number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Conversion Price, and (B) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the aggregate number of shares of
Common Stock of all classes outstanding immediately after such issue or sale;
or (2) by multiplying the Conversion Price in effect immediately prior to the
time of such issue or sale by a fraction, the numerator of which shall be the
sum of (i) the aggregate number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the
Market Price immediately prior to such issue or sale plus (ii) the
consideration received by the Corporation upon such issue or sale, and the
denominator of which shall be the product of (iii) the aggregate number of
shares of Common Stock of all classes outstanding immediately after such issue
or sale, multiplied by (iv) the Market Price immediately prior to such issue or
sale. No adjustment of the Conversion Price, however, shall be made in an
amount of less than 1% of the Conversion Price, but any such lesser adjustment
shall be

carried forward and shall be made at the time of and together
with the next subsequent adjustment. “Market Price” shall mean, for any day,
the average of the final sale prices of the Common Stock on all exchanges on
which the Common Stock may at the time be listed or the final bid prices on the
NASDAQ National Market System or NASDAQ over-the-counter market, in each such
case, unless otherwise provided herein, averaged over a period of forty-five
consecutive trading days ending 2 days prior to the day as of which “Market
Price” is being determined; provided, however, that in connection with a firm
underwriting of a public offering of Common Stock, Market Price shall mean the
initial public offering price in such underwritten offering. If at any time the
Common Stock is not listed on any such exchange or quoted in any such domestic
over-the-counter market, the “Market Price” shall be deemed to be the fair
market value thereof as determined by an investment banks firm mutually
acceptable to the Company and the holders of at least a majority of the
outstanding 1997 Series B Preferred Stock then outstanding; provided, however,
that the appointment of an investment banking firm shall be unnecessary if the
Board of Directors unanimously agrees on the Market Price. Upon any adjustment
in the Conversion Price, the then Series B Conversion Ratio in effect
immediately prior to such event shall, concurrently with the effectiveness of
the event giving rise to such adjustment, be proportionately decreased or
increased, as appropriate.

(B)
Issuance of Rights or Options - In case at any time after the date hereof the
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise), any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called “Convertible Securities”,
but excluding options granted under stock option plans approved by the
Corporation), whether or not such rights or options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable
upon the exercise of such rights or options or upon conversion or exchange of
such Convertible Securities (determined by dividing (1) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such rights or options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the exercise
of such rights or options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (2) the total maximum
number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or exchange of all
such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the Conversion Price in
effect immediately prior to the time of the granting of such rights or options
(or less than the Market Price, determined as of the date of granting such
rights or options, as the case may be), then the total maximum number of shares
of Common Stock issuable upon the exercise of such
rights or options or upon conversion

or exchange of all such Convertible Securities issuable upon the exercise of such rights or options shall
(as of the date of granting of such rights or options) be deemed to be outstanding
and to have been issued for such price per share. Except as provided in subclause (D) below, no further adjustment of the
Conversion Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such rights or options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.

(C)
Issuance of Convertible Securities - In case at any time after the date hereof
the Corporation shall in any manner issue (whether directly or by assumption in
a merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by
dividing (1) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (2) the total maximum
number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be less than
the Conversion Price in effect immediately prior to the time of such issue or
sale (or less than the Market Price, determined as of the date of such issue or
sale of such Convertible Securities, as the case may be), then the total
maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share; provided,
however, that (a) except as otherwise provided in subclause
(D) below, no further adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to purchase
or any option to purchase any such Convertible Securities for which adjustments
of the Conversion Price have been or are to be made pursuant to other
provisions of this clause (vi), no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.

(D)
Change in Option Price or Conversion Rate - Upon the happening of any of the
following events, namely, if the purchase price provided for in any right or
option referred to in subclause (B), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subclause (B)
or (C), or the rate at which any Convertible Securities referred to in subclause (B) or (C) are convertible into or exchangeable
for Common Stock shall change (other than under or by reason of provisions
designed to protect against dilution), the Conversion Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the case
may be) to the Conversion Price which would have been in effect at such time
had such rights, options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or

conversion rate, as the case may be, at the time initially
granted, issued or sold. On the expiration of any such option or right referred
to in subclause (B) or the termination of any such
right to convert or exchange any such Convertible Securities referred to in subclause (B) or (C), the Conversion Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the case
may be) to the Conversion Price which would have been in effect at the time of
such expiration or termination had such right, option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been granted, issued or sold, and the Common Stock issuablethereunder shall no
longer be deemed to be outstanding. If the purchase price provided for in any
such right or option referred to in subclause (B) or
the rate at which any Convertible Securities referred to in subclause
(B) or (C) are convertible into or exchangeable for Common Stock shall be
reduced at any time under or by reason or provisions with respect thereto
designed to protect against dilution, then in case of the delivery of shares of
Common Stock upon the exercise of any such right or option or upon conversion
or exchange of any such Convertible Securities, the Conversion Price then in
effect hereunder shall, if not already adjusted, forthwith be adjusted to such
amount as would have obtained had such right, option or Convertible Securities
never been issued as to such shares of Common Stock and had adjustments been
made upon the issuance of the shares of Common Stock delivered as aforesaid,
but only if as a result of such adjustment the Conversion Price then in effect
hereunder is thereby reduced.

(vii) No Impairment. The
Corporation will not, by amendment of its Articles of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the 1997 Series B
Stock but will at all times in good faith assist in the carrying out of all the
provisions of this section and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the holders
of the 1997 Series B Stock against impairment.

(viii) Certificates as to
Adjustments. Upon the occurrence of each adjustment or readjustment of the
Series B Conversion Ratio, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of 1997 Series B Stock a certificate
executed by the Corporation’s President or Chief Financial Officer setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of 1997 Series B Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series B
Conversion Ratio at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of the 1997 Series B Stock.

(ix) Reservation of Stock
IssuableUpon Conversion.
The Corporation shall at all times reserve and keep available out of its

authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of 1997 Series B Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares
of the 1997 Series B Stock.

(x) Fractional Shares. No
fractional share shall be issued upon the conversion of any share or shares of
1997 Series B Stock. If the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
of cash equal to the fair market value of such fraction on the date of
conversion as determined in good faith by the Board.

(d)

Redemption Rights of the
Corporation. At the option of the Board, the Corporation may, at any time at
which the 1997 Series B Stock is convertible into Common Stock, redeem from
any source of funds legally available therefor, all
or any portion of the outstanding shares of 1997 Series B Stock, at a
redemption price per share equal to $7.35 (the “Series B Redemption Price”)
plus all declared and unpaid dividends thereon, by giving written notice to
each holder of record of 1997 Series B Stock to be redeemed (a “Series B
Redemption Notice”) at its post office address last shown on the records of
the Corporation, not later than 30 days prior to the date fixed for any
redemption (a “Series B Redemption Date”) specifying the number of shares of
1997 Series B Stock that are to be redeemed on the Series B Redemption Date
specified in such Series B Redemption Notice. On such Series B Redemption
Date, the Corporation will pay to each holder of 1997 Series B Stock, upon
surrender for cancellation to the Corporation at its principal office of the
certificates, duly endorsed in blank, representing the shares of 1997 Series
B Stock to be redeemed on such Series B Redemption Date, an amount per share
equal to the Series B Redemption Price thereof plus all declared but unpaid
dividends thereon. If less than all of the shares represented by any such
certificate are redeemed, the shares to be redeemed shall be selected from
the then outstanding shares on a pro rata basis and a new certificate shall
be issued representing the unredeemed shares. Until the Series B Redemption
Date, holders of the 1997 Series B Stock shall be entitled to the full
preferences, limitations and relative rights of such stock. The holders of
such shares of 1997 Series B Stock shall cease to have any further rights,
other than the right to receive the Series B Redemption Price thereof plus
such declared and unpaid dividends, with respect to the 1997 Series B Stock
on the Series B Redemption Date.

(e)

Liquidation Rights. In the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of shares of 1997
Series B Stock then outstanding shall be entitled to be paid, in cash, out of
the assets of the Corporation available for distribution to its stockholders,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any shares of Common Stock or any other shares of
the Corporation junior or subordinate to the 1997 Series B Stock, (i) $4.00 per share, together with all declared and unpaid

dividends on the 1997
Series B Stock, plus (ii) an amount equal to the Corporation’s net assets
remaining after the payment of the amount described in clause (i) above and reduced by the amount payable to the holders
of the 1996 Series A Stock as provided in clause (i)
of Section C(e) of these Articles of Incorporation, multiplied by the
percentage of the Common Stock, on a fully diluted basis, that would be owned
by holders of the 1997 Series B Stock if converted into Common Stock, such
amount to be distributed among the holders of the 1997 Series B Stock on a pro
rata basis. The preferential liquidation rights of the 1997 Series B Stock
shall be superior to preferential liquidation rights of the 1996 Series A Stock. If, upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of shares of 1997 Series B Stock are insufficient
to permit the payment to such holders of the entire preferential amount
provided for in clause (i) above, then all of the net
assets of the Corporation shall be distributed pro rata and in proportion to
the amounts each holder is entitled to receive among the holders of shares of
1997 Series B Stock.

(f)

Protective Provisions. For
as long as 1997 Series B Stock is outstanding, the Corporation shall not,
without the prior written consent or affirmative vote of holders of at least
a majority of the outstanding 1997 Series B Stock:

(1) authorize or issue
any other capital shares of the Corporation which rank superior to the 1997
Series B Stock with respect to conversion, dividends, redemption, liquidation, antidilution or other preferences, designations, rights or
powers;

(2) authorize
or issue any securities of the Corporation which have voting rights superior to
1997 Series B Stock; or

(3) otherwise
amend, alter or repeal the preferences, designations, rights or powers of the
1997 Series B Stock, or enter into any transaction that shall result in any
such amendment, alteration or repeal, which would have an adverse effect upon
holders of such shares. For this purpose, without limiting the generality of
the foregoing, the authorization or issuance of other securities with preference
or priority over the 1997 Series B Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation, shall be deemed to affect adversely holders of the 1997
Series B Stock.

(g)

No Reissuance
of Stock. No 1997 Series B Stock acquired by the Corporation by reason of
redemption, purchase, or otherwise shall be reissued, and all such shares
shall be canceled, retired and eliminated from the 1997 Series B Stock and
shall return to the status of Preferred Stock authorized without designation.

E. Series A Junior Participating Preferred Stock.
There is hereby created a new series of Preferred Stock designated “Series A Junior Participating Preferred Stock.” The number of shares
constituting such series initially shall be one million (1,000,000). Such
number of shares may be

increased
or decreased by the Board of Directors; provided, however, that no decrease
shall reduce the number of shares of Series A Junior Participating Preferred
Stock to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A Junior
Participating Preferred Stock. The Series A Junior
Participating Preferred Stock shall have the preferences, limitations and
relative rights set forth below:

(a)

Dividends and
Distributions.

(i)
Subject to the prior and superior rights of the holders of any shares of any
series of Preferred Stock ranking prior and superior to the shares of Series A
Junior Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Junior Participating Preferred Stock, in preference to the
holders of Common Stock and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available therefor, quarterly dividends
payable in cash on the first day of February, May, August and November in each
year (each such date being referred to herein as a “Quarterly Dividend Payment
Date”), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Junior Participating Preferred Stock.
In the event the Corporation shall on or at any time after February 21, 1999
(the “Rights Declaration Date”) (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine or consolidate the outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

(ii) The Corporation
shall declare a dividend or distribution on the Series A Junior Participating
Preferred Stock as provided in paragraph (i) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that,
subject to the requirements of applicable law and the Amended and Restated
Articles of Incorporation, in the event no dividend or distribution shall have
been declared on the Common Stock

during the period between
any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Junior
Participating Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

(iii) Dividends shall
begin to accrue and be cumulative on outstanding shares of Series A Junior Participating
Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series A Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Junior Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 60 days prior to the date fixed for the payment thereof.

(b)

Voting Rights. The holders
of shares of Series A Junior Participating Preferred Stock shall have the
following voting rights:

(i)
Subject to the provision for adjustment hereinafter set forth, each share of
Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the shareholders of the Corporation. In the event the Corporation shall at any
time on or after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine or consolidate the
outstanding Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

(ii) Except as otherwise
provided herein, in any other amendment to the Amended and Restated Articles of
Incorporation of the Corporation or bylaw, the holders of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one group on all matters
submitted to a vote of shareholders of the Corporation.

(iii) Except as set forth
herein, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.

(c)

Certain Restrictions.

(i)
Whenever quarterly dividends or other dividends or distributions payable on the
Series A Junior Participating Preferred Stock as
provided in Paragraph (a) are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Junior Participating Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:

(A)
declare or pay dividends on, redeem or purchase or otherwise acquire for
consideration, or make any other distributions on any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Junior Participating Preferred Stock;

(B)
declare or pay dividends on, redeem or purchase or otherwise acquire for
consideration, or make any other distributions on any shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Junior Participating Preferred Stock, provided that there
may be declared and paid ratably dividends on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled; and, provided further, that the Corporation may at
any time redeem or purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to the
Series A Junior Participating Preferred Stock; or

(C)
purchase or otherwise acquire for consideration any shares of Series A Junior
Participating Preferred Stock, or redeem or purchase or otherwise acquire any
shares of stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.

(ii) The Corporation
shall not permit any subsidiary of the Corporation (for the account of such
subsidiary) to purchase or otherwise acquire for consideration any shares of
stock of the

Corporation unless the
Corporation could, under paragraph (i) of this
Paragraph (c), purchase or otherwise acquire such shares at such time and in
such manner.

(iii) No dividend shall
be declared and paid, or set apart for payment on, any share of the Series A
Junior Participating Preferred Stock or any share of any other series of
Preferred Stock or any share of any class of stock, or series thereof, ranking
on a parity with the Series A Junior Participating Preferred Stock as to
dividends, for any dividend period unless at the same time a like proportionate
dividend for the same dividend period, ratably in proportion to the respective
dividends applicable thereto, shall be declared and paid, or set apart for
payment on, all shares of the Series A Junior Participating Preferred Stock and
all shares of all other series of Preferred Stock and all shares of any class,
or series thereof, ranking on a parity with the Series A Junior Participating
Preferred Stock as to dividends, then issued and outstanding and entitled to
receive dividends.

(d)

Reacquired Shares. Any
shares of Series A Junior Participating Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock, subject to the conditions and restrictions on issuance set
forth herein, in the Amended and Restated Articles of Incorporation of the
Corporation (including Articles of Amendment duly adopted in accordance with
the North Carolina Business Corporation Act) creating a series of Preferred
Stock or any similar stock, or as otherwise required by law.

(e)

Liquidation, Dissolution or
Winding Up.

(i)
Upon any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $100 per share, plus an amount equal to all accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the “Series A Liquidation Preference”). Following the
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the “Common
Adjustment”) equal to the quotient obtained by dividing (a) the Series A
Liquidation Preference by (b) 100 (as appropriately adjusted as set forth in
subparagraph (iii) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such number
in clause (b), the “Adjustment Number”). Following the payment of the full
amount of the Series A Liquidation Preference and the
Common Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common

Stock, respectively,
holders of Series A Junior Participating Preferred Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to one
(1) with respect to such Series A Junior Participating Preferred Stock and
Common Stock, on a per share basis, respectively.

(ii) In the event,
however, that there are not sufficient assets available to permit payment in
full of the Series A Liquidation Preference and the liquidation preferences of
all other series of Preferred Stock, if any, which rank on a parity with the
Series A Junior Participating Preferred Stock, then such remaining assets shall
be distributed ratably to the holders of the Series A Junior Participating
Preferred Stock and such parity shares in proportion to their respective
liquidation preferences. In the event that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.

(iii) In the event the
Corporation shall at any time on or after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

(iv) Neither the sale,
lease or conveyance of all or substantially all of the property or business of
the Corporation, nor the merger, consolidation or statutory share exchange of
the Corporation into or with any other corporation or the merger, consolidation
or statutory share exchange of any other corporation into or with the
Corporation, shall be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary, for the purposes of this Paragraph (e).

(f)

Statutory Share Exchange,
Merger Consolidation, etc. In case the Corporation shall enter into any
statutory share exchange, merger, consolidation, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Junior Participating Preferred Stock shall
at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time on or after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine or

consolidate the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

(g)

No Redemption. The shares
of Series A Junior Participating Preferred Stock shall not be redeemable.

(h)

Ranking. The Series A
Junior Participating Preferred Stock shall rank junior to all other series of
the Corporation’s Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.

(i)

Amendment. The Amended and
Restated Articles of Incorporation of the Corporation shall not be further
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Preferred
Stock so as to affect them adversely, except in accordance with the
provisions of Section 55-10-04 of the North Carolina Business Corporation
Act, or as otherwise permitted by law.

(j)

Fractional Shares. Series A
Junior Participating Preferred Stock may be issued in fractions of a share
(which shall be integral multiples of one one-hundredth of a share of Series
A Junior Participating Preferred Stock), which shall entitle the holder, in
proportion to such holder’s fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series A Junior Participating Preferred Stock.

III.

Except as otherwise provided in these articles or the
bylaws, the Board of Directors of the Corporation shall have the power, by vote
of a majority of all the directors, and without the assent or vote of the
shareholders, to make, offer, amend, and rescind the Corporation’s bylaws at
any regular or special meeting of the Board of Directors.

IV.

The following provisions shall govern certain business
combinations involving the Corporation. Capitalized terms not otherwise defined
in these articles shall have the meanings ascribed to them in Section IV.D. of these articles.

A. Business Combinations. Any Business Combination
shall require only such affirmative vote as is required by law and any other
provision of these articles if either all of the conditions set forth in
clauses (1), (2) and (3) of Section IV.A. have been
satisfied or if the condition set forth in clause (4) of Section IV.A. have been satisfied:

(1)
Form of Consideration. The consideration to be received by holders of Common
Stock shall be cash or in the same form as previously has been paid by or on
behalf of any Interested Shareholder in connection with its direct or indirect
acquisition of beneficial ownership of any shares of Common Stock. If the
consideration paid by or on behalf of the Interested Shareholder for shares of
Common Stock varied as to form, the form of consideration to be received by
holders of Common Stock shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of Common Stock previously
acquired by the Interested Shareholder.

(2)
Amount of Consideration. The aggregate amount of the cash and the Fair Market
Value of consideration other than cash to be received per share by holders of
Common Stock in any Business Combination shall be at least equal to the greater
of (a) the Fair Market Value per share of Common Stock on the date of the first
public announcement of the proposal of a Business Combination (the
“Announcement Date”) or on the date on which the Interested Shareholder became
an Interested Shareholder, whichever is higher, multiplied by the ratio of (i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers’ fees) paid by the
Interested Shareholder for any shares of Common Stock acquired by it within the
two-year period immediately prior to the Announcement Date to (ii) the Fair
Market Value per share of Common Stock on the first day in such two-year period
on which the Interested Shareholder acquired any shares of Common Stock or (b)
the highest per share price (including brokerage commissions, transfer taxes
and soliciting dealers’ fees) paid by such Interested Shareholder in acquiring
any of the Corporation’s Common Stock.

(3)
Restrictions. After becoming an Interested Shareholder and prior to the
consummation of any Business Combination, (a) such Interested Shareholder shall
not have acquired any newly issued shares of capital stock, directly or
indirectly, from the Corporation (except upon conversion of convertible
securities acquired by it prior to becoming an Interested Shareholder or upon
compliance with the provisions of Section IV of these articles or as a result
of a pro rata stock dividend or stock split) and (b) such Interested
Shareholder shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or tax credits provided by the Corporation, or
made any significant changes in the Corporation’s business or equity capital structure.

(4)
Fairness Opinion. The Business Combination shall have been approved by at least
two-thirds of the Continuing Directors and, if deemed advisable by a majority
of the Continuing Directors, the Board of Directors shall have obtained an
opinion of a reputable investment banking firm to the effect that the financial
terms of such Business Combination are fair from a financial point of view to
the holders of Voting Shares (other than the Interested Shareholder) (such
investment banking firm to be selected by a majority of the Continuing
Directors, to be furnished with all information it reasonably requests and to
be paid a reasonable fee for its services upon receipt by the Corporation of
such opinion).

B. Shareholder Vote. If the
provisions of Section IV.A. have not been satisfied, any Business
Combination shall require the affirmative vote, in person or by proxy, at any
meeting called as provided in the bylaws, of the holders of at least two-thirds
in interest of the issued and outstanding Voting Shares of the Corporation,
including a majority in interest of the holders of issued and outstanding
Voting Shares of the Corporation held by Persons other than an Interested
Shareholder or any Affiliate or Associate of any Interested Shareholder. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required,
or that some lesser percentage may be specified by law or in any agreement with
any national securities exchange or otherwise.

C. Exception. The provisions of
Sections IV.A.and IV.B. shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required by
law and any other provision of these articles, if such Business Combination
constitutes a transaction between the Corporation or any Subsidiary and any
corporation of which a majority of the outstanding shares of all classes of
stock entitled to vote in elections of directors is owned of record or
beneficially by the Corporation or its Subsidiaries, provided that this Section
IV.C. shall not apply to any transaction to which any
Affiliate of any Interested Shareholder is a party.

D. Definitions. For the purposes of these articles:

(1)
The term “Business Combination” shall mean any transaction which is referred to
in any one or more of clauses (a) through (f) of this paragraph (1):

(a) Any merger, share
exchange or consolidation of the Corporation or any Subsidiary with or into (A)
any Interested Shareholder or (B) any other entity (whether or not itself an
Interested Shareholder) which immediately before is, or after such merger,
share exchange or consolidation would be, an Affiliate of an Interested
Shareholder;

(b) Any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (in one transaction
or a series of related transactions) to or with any Interested Shareholder or
any Affiliate of any Interested Shareholder of any assets of the Corporation or
any Subsidiary when such assets have an aggregate Fair Market Value of
$5,000,000 or more;

(c) The issuance or
transfer to any Interested Shareholder or any Affiliate of any Interested
Shareholder by the Corporation or any Subsidiary (in one transaction or a
series of related transactions) of any equity securities of the Corporation or
any Subsidiary where such equity securities have an aggregate Fair Market Value
of $5,000,000 or more;

(d) The adoption of any
plan or proposal for the liquidation or dissolution of the Corporation;

(e) Any reclassification
of securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger, share exchange or consolidation of the Corporation
with or into any of its Subsidiaries or any similar transaction (whether or not
with or into or otherwise involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the percentage of the outstanding
shares of any class of equity or convertible securities of the Corporation or
any Subsidiary which is directly or indirectly owned by any Interested
Shareholder or any Affiliate of any Interested Shareholder; or

(f) Any agreement,
contract or other arrangement providing for any of the transactions described
in this definition of “Business Combination.”

(2) A
“Person” shall mean any individual, firm, corporation or other entity.

(3)
“Interested Shareholder” shall mean any Person (other than the Corporation, any
Subsidiary or a trustee holding stock for the benefit of the employees of the
Corporation or its Subsidiaries) who or which, along with any Affiliates and
Associates of the Interested Shareholder:

(a) Is the Beneficial
Owner, directly or indirectly, of more than 10% of the Voting Shares of the
Corporation or a Subsidiary; or

(b) Is an assignee of or
has otherwise succeeded to any share of capital stock of the Corporation or a
Subsidiary which was at any time within two years prior thereto beneficially
owned by any Interested Shareholder, and such assignment or succession shall have
occurred in the course of a transaction or series of transactions not involving
a public offering within the meaning of the Securities Act of 1933. A Person
shall be deemed an Interested Shareholder for the purpose of this definition if
such Person is an Interested Shareholder as of the record date for the
determination of shareholders entitled to notice of and to vote on any Business
Combination, as of the date any definitive agreement relating to a Business
Combination is entered into or amended so as to make it less favorable to the
Corporation or its shareholders other than the Interested Shareholder, or
immediately prior to the consummation of any such Business Combination.

(4)

A Person shall be the
“Beneficial Owner” of any Voting Shares:

(a) As to which such
Person or any of its Affiliates and Associates, pursuant to any agreement,
arrangement or understanding, or otherwise, has or shares, directly or
indirectly, voting power, including the power to vote or direct the voting of
such shares, or investment power, including the power to dispose or to direct
the disposition of such shares, or both;

(b) Which such Person or
any of its Affiliates or Associates has (i) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise or (ii) the right to vote pursuant to any agreement, arrangement
or understanding; or

(c) Which are
beneficially owned, directly or indirectly, by any other Person
with which such first-mentioned Person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of the Corporation
or a Subsidiary, as the case may be.

(5)
“Voting Shares” when used with respect to the Corporation or a Subsidiary shall
mean shares of such entity having general voting power. For the purpose of
determining whether a Person is an Interested Shareholder pursuant to paragraph
(3) of Section IV.D., the outstanding Voting Shares shall include shares deemed
owned by a Beneficial Owner through application of paragraph (4) of Section
IV.D. but shall not include any other Voting Shares
which may be issuable to any other Person pursuant to
any agreement or upon exercise of conversion rights, warrants or options, or
otherwise.

(6)
“Affiliate” and “Associate” shall have the respective meanings given those
terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on June 30, 1997.

(7)
“Subsidiary” shall mean any entity of which a majority of any class of equity
security (as defined in Rule 3a11-1 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on June 30, 1997) is owned,
directly or indirectly, by the

Corporation; provided,
however, that for the purposes of the definition of Interested Shareholder set
forth in paragraph (3) of Section IV.D., the term “Subsidiary” shall mean only
an entity of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.

(8)
“Continuing Director” shall mean an individual who was a member of the Board of
Directors of the Corporation on the date Section IV of these articles was
adopted by the shareholders of the Corporation, or a director who has been
nominated by the Corporation to directly succeed a Continuing Director or to
join the Board of Directors.

(9)
“Fair Market Value” shall mean (i) in the case of
stock, the highest closing sales price during the 30-day period immediately
preceding the date in question of a share of such stock on the Composite Tape
for New York Stock Exchange—Listed Stocks, or, if such stock is not quoted on
the Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, as quoted in the
NASDAQ National Market, or, if such stock is not included in such system, the
highest closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or, if no such quotations are available, the fair market value on the date in
question of a share of such stock as determined in good faith by a majority of
Continuing Directors, and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined in good faith by a majority of Continuing Directors.

E. The Continuing Directors, by a majority vote, shall
have the power to determine for the purposes of Section IV on the basis of
information known to them (1) the number of Voting Shares beneficially owned by
any Person, (2) whether a Person is an Affiliate or Associate of another, (3)
whether a Person has an agreement, arrangement or understanding with another as
to the matters referred to in paragraph (4) of Section IV.D., (4) whether the
assets of the Corporation or any Subsidiary have an aggregate fair market value
of $5,000,000 or more, (5) whether the consideration received for the issuance
or transfer of securities by the Corporation or any Subsidiary has an aggregate
fair market value of $5,000,000 or more and (6) such other matters with respect
to which a determination is necessary or appropriate under Section IV.

F. Nothing contained in Section IV shall be construed
to relieve any Interested Shareholder from any fiduciary obligation imposed by
law.

V.

Except as otherwise provided herein (and in addition
to any other vote that may be required by law, these articles or the bylaws of
the Corporation), the affirmative vote, in person or by proxy, at any meeting
called as provided in the bylaws, of the holders of at least two-thirds in
interest of the Voting Shares of the Corporation issued and outstanding, shall
be required to amend, alter or repeal Sections II, IV, V and VI of these
articles or Section 4 of Article II and Section 2 of Article III of the bylaws,
or to adopt any new provision inconsistent with such provisions of these
articles or the bylaws; provided, however, that if at the time of any such
proposed amendment, alteration, repeal or adoption, (a) there shall exist one
or more Interested Shareholders and at least two-thirds of the Continuing
Directors approve such proposed amendment, alteration, repeal or adoption, or
(b) no such Interested Shareholder exists, and a majority of the members of the
Board of Directors approve such proposed amendment, alteration, repeal or
adoption, then the affirmative vote, in person or by proxy, at any meeting
called as provided in the bylaws, of the holders of a majority in interest of
the issued and outstanding Voting Shares of the Corporation shall be required
to approve such amendment, alteration, repeal or adoption.

VI.

The provisions of Articles 9 and 9A of Chapter 55 of
the General Statutes of North
Carolina shall not apply to the Corporation.

VII.

To the full extent from time to time permitted by law,
no person who is serving or has served as a director of the Corporation shall
be personally liable in any action for monetary damages for breach of his or
her duty as a director, whether such action is brought by or in the right of
the Corporation or otherwise. Neither the amendment or repeal of this Article,
nor the adoption of any provision of these Articles of Incorporation
inconsistent with this Article, shall eliminate or reduce the protection
afforded by this Article to a director of the Corporation with respect to any
matter which occurred, or any cause of action, suit or claim, which but for
this Article would have accrued or arisen, prior to such amendment, repeal or
adoption.